The following is a contributed article by Matt Lacey, director of transmission business strategy and development for Great River Energy.
There is broad agreement that a large-scale transmission investment in the Midwest is critical to meet increased demand for electricity and ensure reliability and resiliency as baseload power plants retire, more renewable energy is added and electrification increases. Through its long-range transmission planning initiative, the Midcontinent Independent System Operator is charting a path toward this much-needed regional transmission buildout.
The required investment is huge; it is expected that as much as $100 billion in high-voltage electric transmission lines will be built over the next several decades in the 15-state Midwest region. The first phase of projects, in fact, estimated at $10.3 billion, is equal to 17% of the existing transmission rate base in MISO.
To be successful, this transmission buildout “stool” must stand on three legs: financing, projects and support.
To date, there has been a disproportionate focus on solving the need for transmission by incentivizing investments (e.g., return on equity adders, tax credits) and modifying project planning processes (e.g., interregional coordination), both of which are sufficient in their current form. For example, guaranteed returns and cost recovery provide the financial incentive, while the existing planning processes are adequate for identifying transmission projects.
In contrast, there has been an insufficient focus on the third leg of the transmission buildout stool: achieving support of the communities that must host the infrastructure. Providing a tangible benefit that also addresses the affordability of the required transmission will help achieve the support of communities hosting regional transmission facilities and ensure no electricity customer pays an unfair share of the cost of these regional transmission investments.
Need for support
Transmission infrastructure can be challenging to plan, site and build. Stakeholders need to be engaged early to identify potential siting risks and to reach an agreement on who benefits from these projects. As it stands, utilities that own regional transmission facilities are able to recover their costs, plus a profit, while those without an ownership stake end up with just a bill.
Regional transmission projects tend to travel across sparsely populated areas in order to bring electricity from where it’s generated to larger communities and cities where it is most needed. MISO’s first phase of regional projects, for example, is estimated to navigate nearly 1,100 “new” miles, excluding the 1,500 miles of upgrades to existing facilities. These projects will traverse sparsely populated areas which are predominately served by electric cooperatives or municipal utilities owned by the customers and communities they serve. The people hosting this infrastructure that supports primarily urban areas are required to share in its costs according to the tariffs of regional transmission organizations.
The industry needs policies in place to incentivize those who host regional transmission facilities by providing them with an opportunity to invest in this infrastructure – and earn a profit. These investments in the transmission buildout provide a tangible benefit (earnings) versus the real, but less directly assignable benefits like fuel savings or displacing other transmission projects; ownership provides us with the opportunity to mitigate costs to our customers like other owners of transmission infrastructure resulting in greater affordability. While our customers will always receive a bill associated with regional transmission facilities, ownership allows us to offset some of these costs through the profit earned by ownership.
How to gain support
Regulators and policymakers can better enable the necessary transmission buildout by expanding the opportunity to invest in it. Public power, specifically electric cooperatives, must have a fair opportunity to invest in the buildout to preserve affordability for their rural members.
With broader support for new transmission, we can reliably move forward with the energy transition that utilities, their customers and policymakers want. We need policymakers to realize the impact of current rules and make appropriate changes to broaden ownership of these large transmission projects. The solution is not giving more money to companies who are already incentivized to build more transmission. It is incentivizing those who do not necessarily want to see transmission lines being built in their backyards.
The Federal Energy Regulatory Commission is looking at this issue, as evidenced by its recently issued Notice of Proposed Rulemaking proposing to broaden investment in regional transmission facilities. The Commission is contemplating whether a “right of first refusal” should be granted to the transmission owners if those located near a proposed regional transmission facility are provided an opportunity to invest in a project up to their share of electricity purchases in the region. This is the right path that more equitably balances investment with costs.
We will be more successful in getting these needed transmission projects built if we make sure those affected by them have a voice in the project and their public power utility has the opportunity for an ownership stake in them. How ownership is determined will directly impact how much customer bills increase; customers whose utility owns regional transmission projects will experience lower rate increases than customers from utilities without ownership. Regulators and policymakers need to recognize the importance the positive role public power can play in making the required transmission buildout a reality. We have seen the plans for numerous regional transmission projects in other areas of the country fail due to a lack of broad support; only widescale investment can prevent this from happening in the MISO region.
Fairly sharing the burden
America needs to upgrade its power grid and improve reliability by expanding and modernizing the high-voltage transmission infrastructure. The system was not designed to effectively transfer energy from remotely located generation sources nor to connect the magnitude of large-scale renewables trying to interconnect to the grid. The transmission projects currently being planned will not only reduce the risk of outages but will also ease the transition to renewables and other clean sources of electricity.
It is critical that regulators and policymakers help ensure that investment opportunities associated with necessary transmission infrastructure are shared broadly. And it can be done by aligning investment ownership with cost payers through multi-party ownership agreements or ownership shares.
These ownership recommendations only apply to portfolio-based transmission being built to support regional grid transformation. Although these recommendations will not reduce all local opposition to major transmission infrastructure, the opportunity for public power to invest in these projects can create begrudging, if not total, acceptance. This is a win for all involved: the communities that must live with the infrastructure while paying for it, utilities that want to change their resource mix, transmission owners that want investment opportunities, and policymakers that want to see their renewable energy and decarbonization initiatives met.
